Keynesian Economics BY ZACK ALBAN & KYLE ROTHER ⇒ Has greatly affected modern macroeconomics and social liberalism. ⇒ In the 1950’s and 60’s, Keynes’ economic ideas were adopted by 90% of capitalist governments around the world. ⇒ Deemed the “Father of modern Macroeconomics” and greatly considered the most influential economist of the 20th century. ⇒ Keynesian economics was adopted by economists around the world to help with the 2007-current financial crisis. •John Maynard Keynes: 1883-1964 Major published work: The General Theory of Employment, Interest, and money Basics of Keynesian Economics Basic principals ⇒ Keynesian economics acknowledges that in times of stress, the economy stops behaving in a flexible manner, and also that changes in demand in fact can determine and amend supply issues. ⇒ theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. ⇒ Keynes’s General Theory Basics Cont. IMPORTANCE revolutionized the way economists think about economics. It was pathbreaking in several ways: ⇒ In particular because it introduced the notion of aggregate demand as the sum of consumption, investing, and government spending. ⇒ And because it showed that full employment could be maintained only with the help of government spending. Why It’s Good Reasons… ⇒ Historical evidence suggests Keynesian economics has worked successfully to get a more than a few economies out of bad economic times, the largest being the great Depression. ⇒ Changes in aggregate demand, whether anticipated or unanticipated, have the greatest effect on real output and employment, not on prices ⇒ Unlike tax cuts, which has gotten us into the 2007 recession, Keynes’ theory focuses on stimulating the job market so Unemployment goes down, driving the deficit back up to normal again, similar to what happened in 1930-1940. ⇒ If the economy is down a trillion The Big Picture dollars, then it needs a government stimulus injection, but that government stimulus does not have to be a trillion dollars. Keynesian theory says a percentage of the needed boost is all you have to do, say 1% . Once $600 to $800 billion is in the hands of the people they will go out, pay bills, buy cars, houses, do repairs, and everywhere they go to spend money those service providers and retailers will have more money to spend. ⇒ $800 billion in the hands of regular Continued people will become recycled dollars. Every dollar they spend with a retailer or service provider is going to be respent by the people who get those dollars, and the people getting that money will spend and with business getting better, more supplies will be needed more workers needed, and eventually the economy's’ sputtering engine will take hold, get into a rhythm and start running smoothly. Keynes’ theory works because Tax Cuts are bad: Tax Cuts (supply side) do not work ⇒ Tax cuts, in the form of larger paychecks, contribute very little to the stated goal of stimulating the economy through consumer spending. The amount of money in each paycheck isn't enough to keep anyone in foreclosure trouble from folding. ⇒ Cutting taxes will necessitate a raise later, so just as people would be adapting to the small increase above, they will be sacked with increased taxes because of slightly higher income. ⇒ Tax cuts generated to big businesses begin a Tax Cuts=Bad Cont. trickle down mentality at its finest. Hopefully the money going to them will “trickle down“ to everyone else and stimulate the economy and not go into expensive V.P and C.E.O golf matches. ⇒ Tax cuts are not 100% bad, but the recent tax cuts from the Bush administration have left the economy in its current state. The reason they are not all bad is because President Obama is actually planning to use tax cuts on top of economic stimulus to help the less wealthy middle class spend money and save themselves, and in doing so, stimulating the market. Economic Stimulus (Keynesian Economics) ⇒ Economic stimulus, which has given people immediate and greater benefits than tax-cuts, is the undermining principle of Keynesian economics. ⇒ Keynesians believe in giving money to individuals, more than enough to start the cycle of growth and repair in the recession. ⇒ Giving money to individuals and Stimulus CONT. possibly enforcing that some had to be spent on consumer goods would IMEDIATELY increase the welfare of the economy and government. Plus, such a large portion of money would help individuals reduce debt, increase investment (helping the stock market), and make substantial payments on mortgages. KEYNESIAN RAP AND THEORY YouTube - keynesian economics rap ⇒ Current economy? ⇒ Keynesian in the Great Questions? Depression? ⇒ How it works? ⇒ Tax cuts and stimulus? ⇒ John Maynard Keynes?